Financing Healthcare for All in India: Towards a Common Goal

8/9/2019 Financing Healthcare for All in India: Towards a Common Goal

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Financing Healthcare for all in India:

Towards a Common Goal

Oommen C. Kurian


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ACKNOWLEDGEMENTS

Author: Oommen C. Kurian

Inputs: Indranil Mukhopadhyay, Anant Phadke, VR Raman, ShabareeshPillai, Sadanand Nadkarni, Chandrakant Lahariya, Katie Malouf Bous (OxfamInternational), Nicolas Mombrial (Oxfam International), Deepak Xavier(OxfamIndia), Pallavi Gupta(Oxfam India), and Pooja Parvati (Oxfam India).

A draft of this paper was circulated for comments and feedback at the firstever Universal Health Coverage Day commemorative event jointly organisedby the World Health Organisation, Public Health Foundation of India,Rockefeller Foundation and Oxfam India. The event was held on the 12th December 2014 at New Delhi, India.

© Oxfam India May, 2015

This publication is copyright but the text may be used free of charge for thepurposes of advocacy, campaigning, education, and research, provided thatthe source is acknowledged in full. The copyright holder requests that allsuch use be registered with them for impact assessment purposes.For copying in any other circumstances, permission must be secured.E-mail: [email protected]/

PUBLISHED BY

Oxfam India: 4th and 5th Floor, Shriram Bharatiya Kala Kendra,1, Copernicus Marg, New Delhi 110001Tel: +91 (0) 11 4653 8000www.oxfamindia.org

Oxfam India

Oxfam India, a fully independent Indian organization, is a member of aninternational confederation of 17 organisations. The Oxfams are rights-based organizations, which fight poverty and injustice by linking grassrootsinterventions, to local, national, and global policy developments.

For further information please write to:[email protected], orvisit our website: www.oxfamindia.org.

Photographs by: Srikanth Kolari

Oxfam India Working Paper Series disseminates findings of its work in progress to encourage the

exchange of ideas about development issues. An objective of the series is to get the findingsout quickly, even if the presentations are less than fully polished. The papers carry the namesof the authors and should be cited accordingly. The findings, interpretations and conclusionexpressed in this paper are entirely those of the authors. They do not necessarily represent theviews of Oxfam India.


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CONTENTS

List of Acronyms 2

Abstract 3

Chapter 1: Background 5

Chapter 2: Healthcare Financing in India 9

Chapter 3: Government Financed Insurance Schemes in India 15

Chapter 4: The Case of Rashtriya Swasthya Bima Yojana (RSBY) 23

Chapter 5: Way Forward 27

Notes 32

List of tablesTable 2.1: Health Indices for India and Select Countries 9

Table 2.2: Percentage distribution of births by type of medical attention at delivery (2013) 11

List of figuresFigure 2.1: Per Capita Total Public Expenditure on Health in Indian States 2009-10 12

Figure 3.1: Incurred Claims Ratio: Health Insurance Industry 20

Figure 3.2: Incurred Claims Ratio Across Insurance Categories: Public Companies 21

Figure 4.1: RSBY Hospitalisation Ratios across Oxfam’s Focus States 24


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ACRONYMSASHA Accredited Social Health Activist

BPL Below Poverty Line

CBR Crude Birth Rate

CDR Crude Death Rate

CGHS Central Government Health Scheme

CHC Community Health Centre

ESIS Employee State Insurance Scheme

GDP Gross Domestic Product

GSDP Gross State Domestic Product

HLEG High Level Expert Group

ICICI Industrial Credit and Investment Corporation of IndiaIFC International Finance Corporation

ILO International Labour Organisation

IMR Infant Mortality Rate

IRDA Insurance Regulatory and Development Authority

JSY Janani Suraksha Yojana

MMR Maternal Mortality Rate

MNC Multi National Corporation

NAC National Advisory Council

NCMP National Common Minimum Programme

NEP Net Earned Premium

NFSA National Food Security Act

NHAM National Health Assurance Mission

NIC National Insurance Company

NICE National Institute for Health and Care Excellence

NRHM National Rural Health Mission

OOP Out-of-Pocket

PHC Primary Health Centre

PHFI Public Health Foundation of India

PPP Public Private PartnershipRSBY Rashtriya Swasthya Bima Yojana

SAP Structural Adjustment Programme

TFR Total Fertility Rate

UHC Universal Health Coverage

UN United Nations

UNDP United Nations Development Programme

UNSDSN United Nations Sustainable Development Solutions Network

WDR World Development Report

WHO World Health Organisation


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ABSTRACTIndia continues to have among the lowest public health budgets in the world at just over 1% of Gross

Domestic Product (GDP) and it gets reflected in the performance of the public healthcare delivery system– be it in the form of user charges acting as a major access barrier, decaying infrastructure, severe staff

shortages or unavailability of medicines. The public and the private sector remain notoriously unaccountable.

Despite the country’s newfound middle-income status, the ineffectiveness of the Indian health system

and characteristically high health-related out-of-pocket hospital payments have pushed around 60 million

people below poverty line; the number is equivalent to the population of the United Kingdom.

Increased spending through National Rural Health Mission (NRHM) and the focused attention to rural

healthcare are slowly yielding results. In a major shift from 2004 when only one-fifth of the total outpatient

care and 40 % of in-patient care by the public sector, most deliveries across urban and rural areas are now

taking place in government hospitals as pointed to by data from 2013 Sample Registration System (SRS).

Given that there are schemes across the country that offer incentives deliveries in private sector facilities,this is a remarkable result. In this context, aggressive expenditure compression policies followed by the

current government to meet fiscal deficit targets are a major cause of worry. Familiar arguments regarding

lack of resources for social sectors notwithstanding, there indeed are alternative sources that can be,

and will have to be, tapped in order to generate more resources for health. Moreover, the big question

seems to be how these new alternative funds will be spent— will it be through an expansion of the existing

public healthcare delivery system, or an insurance-based, private sector dependant platform, or through

a cautious combination of the two?

This paper explores available evidence and tries to contextualise and map the debate. While the focus

of this paper is on healthcare in response to current policy debates, Oxfam India recognises the crucial

importance of adopting a holistic approach to health, addressing factors such as nutrition and sanitation,

and broader social determinants of health. In the light of the analysis presented in the following sections,we recommend that:

Government should be the primary provider of healthcare, and provision of healthcare for all should

not be based on expansion of health insurance-based models focusing on hospitalisation.

A clear roadmap to enhance budgetary spending on healthcare to 3%-5% of GDP should be drawn.

Public tax-based funding and contribution from the organised sector should finance healthcare

and focused funding in the form of specific central transfers should be made to promote equitable

access.

Regulation of the private sector must be a priority. Establishment of standard treatment protocolsand empowerment of communities to hold the healthcare system accountable will be critical to

ensure quality of healthcare in the public and private sectors.

A comprehensive review of RSBY and other currently fragmented government funded healthcare

schemes should be conducted with the aim of future consolidation for a national programme

ensuring healthcare for all.


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Chapter 1

BackgroundA recent analysis of constitutional provisions revealed that 68 of the 191 UN countries guaranteed right to

medical care services by 2007.1 India, which officially turned a middle-income country in the same year,

was not one among them2. India’s transition to a middle-income status meant little to most Indians as the

spectacular economic growth of the recent past was not reflected in equally glowing terms in improvements

in social indicators. If we go by poverty headcount ratio based on $2 a day earnings (PPP) of the World Bank,

India had more than 700 million poor people in 2011- more than Europe’s total population and about three-

fourths of Africa’s total population.3 There have indeed been many gains in some human development

indicators, but these have often fallen considerably short of the goals we had set for ourselves.

India accounts for the highest number of maternal deaths in the world, and together with Nigeria (14%),

accounted for one-third of all global maternal deaths.4 The National Rural Health Mission (NRHM) aimed

to reduce the Infant Mortality Rate (IMR) to 28/1000 live births, the Maternal Mortality Rate (MMR) to 100/

100000 live births and the Total Fertility Rate (TFR) to 2.1 by 2012. With IMR at 40 and MMR at 167 in 20135,

only TFR seems anywhere near the goal set with 24 of the 29 states and 9 UTs achieving replacement levels

of fertility6. This achievement however is an indication of the focused attention that fertility control has

received across the country, often resulting in tragic human rights violations in mass sterilisation camps,

targeting the poor 7. With IMR and MMR still lagging behind, the success of family planning programmes is

often at the cost of quality and access improvements in healthcare in general8.

Of the 1240 million Indians, about 70% still live in rural areas. As a recent review shows, public financing

of health is among the lowest in the world at just over 1% of GDP, and out-of-pocket (OOP) spending is very

high at around 3% of GDP. Share of OOP in total spending in India is one among the highest in the world. It

is seen that expenditure on medicines consists of about three-fourths of total out-of-pocket spending.9

Financial reasons prevented around a quarter of the population from accessing health services. It was

estimated that 35% of hospitalisations caused the respective families to be pushed into poverty. In real

terms, it meant health payments pushed 60 million people below the poverty line, per year.10 To put this into

perspective, it is equivalent to the total population of the United Kingdom.

The idea of universal healthcare had its origins at the Alma Ata Conference in 1978, where Health for All

was agreed upon by all the 13411 participant countries. The conference broadly defined health with a strong

focus on universal primary healthcare (PHC) and equity. India too is a signatory to the Alma Ata Declarationwhich affirmed that health, which is a state of complete physical, mental and social well-being, and not

merely the absence of disease or infirmity, is a fundamental human right and that the attainment of the


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highest possible level of health is a most important world-wide social goal whose realisation requires

the action of many other social and economic sectors in addition to the health sector.12 The Alma Ata

declaration is considered to be an intellectual and moral leap forward for humankind.13

After three decades which did not see much action in global health in the spirit of Alma Ata, the 2010 World

Health Report popularised the concept of Universal Health Coverage (UHC) across global policymakers. With

a focus on financial protection, UHC is described by World Health Organisation (WHO) as “access to good

quality health services without people experiencing financial hardship because they must pay for care”14.

Since the publication of the 2010 World Health Report, UHC has achieved momentum, and countries across

the world have made time-bound commitments to achieve it. 15 WHO’s Discussion Paper on Positioning

Health in the Post-2015 Development Agenda called UHC “a practical expression of the concern for health

equity and the right to health”.16

Sengupta (2013) observes that one reason for the unified support of UHC among international agencies

was the global rise in catastrophic OOP spending on healthcare, in the backdrop of crumbling public health

systems, which in turn was a consequence of a prolonged period of neglect of public healthcare andprivatisation of health systems, as prescribed by the Structural Adjustment Programme (SAP) in the 1980s.17

Because of the devastating effects of such health shocks, OOP spending became politically untenable and

UHC was seen as a solution. In a way, for many international institutions like the World Bank and experts

like David de Ferranti, the promotion of UHC often meant a reversal of some of their previously held policy

positions.18

In an interview just before its biannual meeting in 2014, the World Bank head Jim Yong Kim admitted:

“There’s now just overwhelming evidence that those user fees actually worsened health outcomes. There’s

no question about it. So did the bank get it wrong before? Yeah. I think the bank was ideological” .19 This

echoed words of WHO head, Margaret Chan from five years ago: “User fees for health care were put forward

as a way to recover costs and discourage the excessive use of health services and the over-consumptionof care. This did not happen. Instead, user fees punished the poor” .20

Yates and Dhillon (2014) observe that the recent Lancet Commission on Investing in Health focused on

public financing mechanisms and redistributive risk pools in reaching UHC and explicitly rejected the 1993

World Development Report’s (WDR) emphasis on private financing including user fees and it marks a new

consensus.21

United Nations Sustainable Development Solutions Network (UNSDSN) in 2014 proposed a set of financing

targets for the member countries: public healthcare expenditure should be 3% of GDP in low income

countries; 3.5% of GDP in lower middle income countries; 4% of GDP in upper middle income countries

and 5% of GDP in high income countries.22 WHO, on the other hand, gave more specific suggestions and

recommended four key priority actions to finance UHC: reduce direct payments, maximise mandatory pre-payment, establish large risk pools, and use general government revenue to cover those who cannot afford

to contribute.23

UHC implies that everyone receives access to essential healthcare and do not suffer major financial

adversities when seeking health services. The word “universal” in UHC could refer to the total coverage of

population needing healthcare, or to the comprehensiveness of health services that are provided, or both.

However, India has moderate ambitions when it comes to UHC, and the Twelfth Five Year Plan envisaged an

increase in public health spending to about 2.1% of GDP by the end of 2017.24 If achieved, it would still mean

a doubling of the current spending level as these are nowhere near the 3.5% as suggested by UNSDSN.

Furthermore, there have been criticisms that the push and the urgency for UHC is being utilised to

rationalise a partnership between public and private sectors with an emphasis on tertiary care25. India’s

non-seriousness when it comes to universal access is also reflected in the fact that public healthcare


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delivery system still has user charges, despite such charges being established globally as a serious access

barrier and rejected as already seen.

Despite familiar arguments regarding lack of resources to be spent on social sectors, and the aggressiveexpenditure compression policies followed by the government to meet fiscal deficit targets, there indeed

are alternative sources that can be and will have to be tapped in order to generate more resources for

health, as discussed in a later section. Moreover, the big question seems to be how these new funds

will be spent—whether through an expansion of the existing public healthcare delivery system or using

an insurance-based, private sector dependant platform to expand services, or a cautious combination of

the two? An earlier Oxfam India publication had observed that in a context where accountability is weak,

demand side financing needs to be used cautiously as they risk moving attention away from the more

meaningful task of strengthening public delivery across the country.26


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Chapter 2

Healthcare Financing in IndiaOver the past few decades, India has made significant gains in health outcomes. The IMR was 134 per

thousand live births at the time of Independence and has declined to around 40 in 2013. MMR has improved

from 560 per 100000 live births in 1990 to 167 in 2013. 27 The Crude Birth Rate (CBR), reflecting the huge

mortality load, stood at 39.9 in 1941-51, declining to 21.4 in 2013. The Crude Death Rate (CDR) declined from

27.4 in 1941-51 to 7.0 in 2013.28

As a consequence, life expectancy, which was around thirty at the time of independence, is now in the

mid-sixties. Nevertheless, India’s achievements on this front have not been comparable to its economicgains and it has worse health indices than most developing countries in the world. Table 2.1 compares

health indices in India, Thailand, China, Bangladesh, Sri Lanka, Pakistan and Brazil in relation to their public

spending on health.

Table 2.1: Health Indices for India and Select Countries

Indicator India Thailand China Bangladesh Sri Lanka Pakistan Brazil

Infant Mortality Rate 50 12 17 41 13 70 17

Under 5 mortality Rate 66 13 19 52 16 87 21

Fully immunised (%) 66 98 95 89 99 80 99Birth by skilledattendants (%)

47 99 96 18 97 39 98

Per capita governmentexpenditure on health(PPP Int $)

39 247 203 14 66 20 483

Source: HLEG Report 2011 and World Health Statistics, WHO 2011.

It becomes clear from Table 2.1 that health achievements in India have been extremely modest when

compared to most other developing countries, and that outcomes are linked with level of public health

spending. India’s first Health Policy that was adopted in 1983 set out to provide “universal, comprehensive

primary health care services, relevant to the actual needs and priorities of the community”.29 Thisnotwithstanding, India has one of the lowest public health expenditures in the world, and a high proportion


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of private spending. It is therefore not surprising that we have among the world’s highest proportions of

undernourished children and women, one of the highest rates of maternal mortality in the world, and an

extremely high load of preventable and communicable diseases30.

Overall health spending accounts for 4.1% of India’s GDP which amounts to very low per capita health

spending, and in terms of absolute numbers, this is fairly average for a lower to middle-income country. The

negative effect of overall low health spending is aggravated by low levels of public spending on health.31

Taking into account the profound weaknesses of the healthcare system, especially in rural areas, the

central government initiated NRHM in 2005 to strengthen India’s rural public health infrastructure, with

special reference to poor performing states.

In spite of the stated objective of raising the outlays for public health from 0.9 % to 3 % of GDP by 2012

through NRHM and expanding public health infrastructure substantially, we find that public health spending

remains just above 1 % of GDP. 32 According to the Bulletin on Rural Health Statistics in India (2014), there is

a shortage of 36346 Sub Centres, 6700 Primary Health Centres (PHCs) and 2350 Community Health Centres

(CHCs) in India. In addition, crippling shortage of human resources at all levels of public healthcare deliverysystem has a negative multiplier effect on the quality of care.33

Despite less than expected improvements in health infrastructure and personnel, there have been

improvements in indicators like immunisation, institutional deliveries and antenatal care. 34 A study looking

at health budgets found that despite the adoption

of NRHM, public expenditure on health increased

only marginally to 1.2 % of GDP in 2009-2010. This

resulted in continuing poor quality of preventative

care and poor health status of the population and

forced people to seek private care, resulting in very

high out of pocket spending. 35

A study looking at state level experiences found

that on an average the distribution of expenditure

between secondary and tertiary healthcare system

in India does not seem to follow the desired

pyramidal structure of expenditure. In other words,

the share of expenditure in tertiary healthcare

facilities tends to be much higher than secondary

healthcare facilities.36

Indian health system is plagued with serious

problems such as sharp inequalities in healthoutcomes, deficient coverage, unequal access,

poor quality and high costs, which have been

explored in a study supported by Oxfam India37.

These serious deficiencies are not accidental.

They have been primarily caused by the patterns of

financing for healthcare in India. Per capita public

health spending is an extremely significant variable

affecting life expectancy at birth across Indian

states.

According to calculations by Choudhury and Kumar(2011), the association between per capita Gross

State Domestic Product (GSDP) and life expectancy

Issues in Fiscal Federalism

In the federal fiscal architecture in India,there is a ‘vertical imbalance’ between thepowers of the states and the Centre to

raise revenue through taxes and duties incomparison to their expenditure requirements.The powers of revenue mobilization vestedwith the states are insufficient to help themmobilize resources that would meet theirtotal expenditure requirements. This kind ofa vertical imbalance was built into the fiscalarchitecture of India keeping in mind the needfor the Central Government’s interventions toaddress the ‘horizontal imbalance’, that is, thelimited ability of some of the states to mobilizeadequate resources from within their state

economies in comparison to others. In thefiscal architecture that has evolved in India,a significant amount of financial resourcesare transferred from the Central Governmentevery year to every state government soas to enable the state governments tomeet their expenditure requirements. Infact, for any state, a large part of the stategovernment’s total revenues is provided bythe Central Government in the form of: a share

in tax revenue collected under the Central

Government tax system, grants and loans.

Source: Praveen Jha and Subrat Das (2010), India’s FiscalPolicy Space for Investing in Children, No 4, IHD - UNICEFWorking Paper Series, New Delhi.


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at birth disappears with the inclusion of per capita public health spending. It was noted that factors like the

priority assigned to health, equitable provisioning and reach of health services, the quality of healthcare,

the institutional milieu in which service delivery takes place and complementary investments in sectors

other than health such as basic education, nutrition, sanitation and water became equally importantparaeters.38

The level of per capita public health spending at the state level is also a function of how tax revenues of

central as well as state governments are distributed across states. Choudhury (2014) found that public

spending on health is particularly low among Indian states with low fiscal capacities. This partly stems from

the inability of the Central Government to offset structural fiscal bottlenecks in the states through vertical

transfers39.

Despite spending a greater share of their total expenditure on health, the level of per capita health spending

in these states remains low. The additional requirement of health spending needed in just the six poorly

performing states is to the extent of 65%, for a minimum level of healthcare services.40 Lessening the

effectiveness of health spending further, particularly in the low performing states are the gaps in humanresources and their skewed distribution.

It is well established that high morbidity and mortality rates in the country are mainly due to the alarmingly

low public investment in health as discussed earlier. The National Health Policy (NHP) acknowledging this

noted that, “public health investment over the years has been comparatively low, and as a percentage of

GDP, has declined from 1.3 % in 1990 to 0.9 % in 1999”.41 Health spending has declined as a proportion of

total plan expenditure from 3.3 % in the First Plan to 2.09% in the Tenth Plan while expenditure on Family

Welfare increased as a proportion of total plan expenditure from 0.1% to 1.83% during the same period

reflecting the priorities of the government.42

Deolikar et al (2008) observed that public spending on health in India peaked at about 1.6 % of GDP and 4 %

of the government budget in the mid 1980s. During the 1990s, government health spending failed to keepup with the expanding economy, and, by 2001, it constituted 0.9 % of GDP and 2.7 % of the government

budget. These numbers fell to 0.8% and 2.4%, respectively, by 2005. 43

However, from the 2006–07 budget, this trend slowly reversed with increased allocations witnessed in

social sectors. Investments in health have started receiving a higher priority primarily because of the

perceived role of health of the working population in accelerating and sustaining economic growth and, to

a lesser extent, because of the growing recognition of health as a human right. 44

As shown in Table 2.2, across urban and rural areas, most deliveries are now taking place in government

hospitals (SRS 2013). Given that there are schemes across the country that offer incentives deliveries in

private sector facilities, this is a remarkable result. However, the reported cuts in social spending by the

central government to meet the fiscal deficit targets will surely offset the gains made in the recent years.Sharp expenditure compression policies are in place and the revised health sector plan expenditure is

reported to be Rs.7,000 crore lower than the budgeted amount for 2014-15.45

Table 2.2: Percentage distribution of births by type of medical

attention at delivery (2013)

Total Rural Urban

Government Hospital 50.0 48.8 55.0

Private Hospital 24.4 20.9 37.1

Qualified Professional 12.7 14.4 6.1

Untrained Functionary and Others 12.9 15.9 1.7

Source: SRS Statistical Report 2013.


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Figure 2.1: Per Capita Total Public Expenditure on Health in Indian

States 2009-10

Source: Mita Choudhury and H.K. Amar Nath (2012).

After the rolling out of NRHM, the per capita public expenditure on health has been increasing, although at

a slow rate. This increase was visible across the states and studies have shown that the relative share of

public expenditure on health by centre and states has remained steady at around 40: 60 in the period 2004-

05 to 2010-11.46

Reflecting the high growth rate, an aggregate share of health spending which increased by0.2 % of GDP meant that, in per capita terms, there has been a sharp rise in per capita public spending on

health in the same period. In 2004-05 prices, per capita public expenditure on health in the country nearly

doubled in the period from about Rs. 263 in 2004-05 to Rs. 486 in 2010-11.47 However, public expenditure at

the state level varies significantly, as shown in Figure 2.1.

The National Common Minimum Programme (NCMP) in 2005 had made a commitment –and the government

made an announcement later - to increase public spending on health to 2.5-3 % of GDP over 5-7 years. 48

The 3% of GDP target was endorsed by almost all relevant government policy documents on health; be it the

report of the Working Group on Health Care Financing including Health Insurance for the Eleventh Five Year

Plan (2006), the Approach Paper to the Eleventh Five Year Plan (2006), the Eleventh Five Year Plan document

(2007–12), the report of the High Level Expert Group (HLEG) of the Planning Commission on Universal Care (

2011), or the report of the Steering Committee on Health for the Twelfth Five Year Plan.

The Twelfth Five Year Plan document, however, scaled it down to a moderate target of only 2.1% of GDP by

the end of the plan period, i.e. by 2017. To achieve public spending of 3% of GDP, calculations reveal that

the nominal per capita health expenditures will have to go up from Rs 267 in 2005–06 to Rs 2,430 by the

target year.49 At the current rate of spending, it is clear that such an eventuality is highly unlikely in the

near future.

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In this context, the National Advisory Council (NAC) Working Group on UHC in 2013 found that for most states

in India, it would not be possible to offer UHC given the current levels of financing - no matter who the

provider is, whether it be public or private sector, and what method of purchasing it may be, whether supply

side or demand side.50

Given this policy background, it is puzzling that academics reportedly close to the current political

dispensation give policy advice that flies in the face of existing evidence, including what was compiled

and presented by the HLEG on UHC. In their latest book, the release of which coincided with the change in

the central government, Arvind Panagariya and others suggest the following:

Turning to medical service delivery, we recommend that rather than further expand the provision of free primary,

secondary, and tertiary health care services in the public sector, the government must focus on providing financial

resources to the poor for routine and non-routine care... Even so, if the government must insist on the provision of

the services, it must do so on the full cost recovery basis. Once the poor have been provided the financial resources

necessary to pay for their health care expenditures, there does not remain a case for additionally free provision of

the service by the government.... We estimate that assuming four members per household, the budgetary cost of

transferring 2000 rupees per year per household at 2010/11 prices to the bottom half of the population for routine

outpatient care would be just 0.38% of the GDP. For an additional 0.38% of the GDP, the government can provide

an insurance cover of 40, 000 rupees per household per year at 2010/11 prices for non-routine care in or out of

hospital to the bottom half of the population. Thus, excluding administrative costs, the government can provide at

least a modest health care cover for the bottom half of the population for just three-quarters of a percent of the

GDP. (Panagariya, Arvind et al 2014, emphasis added.)51

Given the political patronage enjoyed by the private healthcare industry, and since the government is

already experimenting with incorporating outpatient care in the existing Rashtriya Swasthya Bima Yojana

(RSBY)52 , these recommendations have a high likelihood of gaining policy traction, and can put a serious

threat to health equity in the country, by undermining the public healthcare delivery system further.

Cross-national research has shown predominantly private health systems to be highly regressive, serving

the richest far more than the poorest. Analysis of data from 44 low and middle income countries suggested

that higher levels of private sector participation in primary healthcare have been associated with higher

levels of exclusion of poor people from treatment and care.53 At the same time, recent Oxfam research

(Seery, 2014) has shown that universal public services are one of the strongest weapons in the fight

against inequality. They mitigate the impact of skewed income distribution, and redistribute wealth by

putting ‘virtual income’ into the pockets of the poorest women and men.54

In India, supporting community empowerment and participation as a tool to ensure accountability in the

system and meeting the institutional requirement for the same remains relatively unexplored. Like in thecase of Accredited Social Health Activists (ASHA), community based efforts are often designed to be driven

solely by voluntarism, even as the expectations in terms of outcomes are quite high. The assumption

seems to be that community empowerment and participation will happen with minimal effort or financial

commitments55. Focused and adequate financial commitments for community based accountability

measures and decentralised planning will be a step forward in the right direction.


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Chapter 3

Government Financed Insurance

Schemes in India

While India’s efforts to expand healthcare access have historically focused on supply-side interventions,in the last decade, there have been various interventions focusing on demand-side policies which engaged

the private sector in a plethora of ways. At the national level, the first of such schemes was Janani Suraksha

Yojana (JSY) launched in 2005, which provided incentives for institutional deliveries at health facilities,

public and private. In 2006, the government of Gujarat launched the Chiranjeevi Yojana , which engaged the

private sector facilities for institutional deliveries, since public hospitals were seen to lack the capacity

and reach to serve many rural areas.56

The rationale for these schemes was to make use of the existing private sector capacity. A shift to promote

institutional deliveries as opposed to safe deliveries -whether at home or at a facility- has also come along

with such demand-side financing schemes. It is interesting to note that in Britain, the latest NHS guidance

from National Institute for Health and Care Excellence (NICE) suggests that 45% of births-the low-risk ones

- are ‘unsuitable’ for hospitals and recommends that women should have all four possible delivery options

available to them: hospital care, midwifery units in hospitals, midwifery units based in the community and

at home.57

Parallel to the moderate efforts through NRHM, a new health insurance system supported and sustained

by public funds is being systematically built by the central/state governments. The growth of government

health insurance schemes at the national level and across states has brought new opportunities for the

private sector. The Rajiv Aarogyasri Scheme of Andhra Pradesh triggered similar schemes in several other

states like Tamil Nadu, Karnataka, Maharashtra, and Gujarat.

A national insurance scheme named Rashtriya Swasthya Bima Yojana (RSBY) was rolled out in 2008 in a

phased manner. It is estimated that by 2015, 50% of India’s population will be covered by governmentinsurance schemes.58 The main objective of these new government funded health insurance schemes

was to offer protection to below poverty line households against health shocks, defined in terms of an


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inpatient stay.59 Many of these new schemes are modeled in part on various community-based insurance

schemes that have been operating across the country, although at a smaller scale like VimoSewa, Karuna

or Yeshasvini 60.

Although the coverage per se has been quite wide, the depth of coverage- which denotes the extent of

benefit packages offered in the scheme - has been a mixed bag. A review of existing health insurance

models in India conducted by the Public Health Foundation of India (PHFI) showed that the new schemes

provide only hospitalisation cover to the beneficiaries. RSBY’s package in particular, at Rs 30,000 per family

is very modest given today’s health needs and costs. 61

The review by PHFI also concluded that privately provided tertiary care, which is expensive and high-margin,

can lead to medicalisation of health triggering unsustainable cost-escalation. Taking into account long-

term fiscal sustainability, strengthening public healthcare delivery system seems to be a better option.

62 In the interim period, however, structural constraints may lead to contracting in tertiary care services

from the private sector. A strong regulatory system for quality and price control would be a necessary pre-

condition for any such initiative. 63

The existing conditions and arrangements for the market purchase and insurance of healthcare remain

suboptimal not only in India but also in many of the other lower middle income countries. However, there are

lessons to be learned for India from many of these countries, some of which have decades of experience in

reforming health systems to expand access.64

Serious incentive incompatibility problems ensure that various stakeholders’ interests are not aligned

towards an optimal outcome – in other words, vested interests and profit maximisation efforts by powerful

and influential players in such arrangements can undermine public health goals. . Reviewing these

conditions in India, the NAC Working Group on UHC by the Government of India concluded that existing

arrangements perpetuate an inefficient use of scarce financial resources as the tendency in the systems

is either to deny use -by insurance companies, or to overuse -induced by the medical practitioners, and

misuse by both.65

3.1 Political Economy of Government sponsored Insurance Schemes

The last decade has been one of accelerated expansion for the voluntary private health insurance industry,

with annual growth rates of more than 30 %. This rapid growth of the insurance industry represents the

latest phase of private sector expansion in healthcare services n India.66 In the last decade, India has also

witnessed the roll-out of many insurance schemes both by the central and state governments aiming at

utilising existing private sector capacity, and hoping that the purchasing power will act as an incentive for

new hospitals to come up in the rural areas.

At the time of independence, private sector accounted for about 8 % of India’s healthcare facilities.67 Over

the years, private healthcare sector has grown tremendously with explicit support of the Indian State.

Selvaraj and Karan (2009) note that public sector provision of outpatient healthcare accounted for only

one-fifth of the total outpatient care n 2004 as against over one-fourth (26%) in 1987-88 in India. The

share of public provisions which used to cater to around 60% of in-patient care in 1987-88, has

registered a steep decline to approximately 40% in 2004 as well.68

The story of growth of the private health sector in India is also a story of systematic neglect of the public

health system over the years. The private sector has been the recipient of direct and indirect subsidies

from the State, and of late, the social sector itself has become a lucrative market with guaranteed revenue

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As is true all over the world, in order to maximise profitability, the private sector shares a complex

relationship with the State - the Sneeds to be pushed back so that new markets are captured/created. At

the same time, as the global economic recession clearly demonstrated, the State is also often looked up to

by the private sector as an insurance against losses in times of economic crises69

. Socialisation of lossesis a very welcome proposition for the private sector during slowdowns as the recent bail-out packages

across the globe have demonstrated.

As social sector spending capacity of the developing country governments goes up, the political pressure

from the electorate on the State to change its role from that of a deliberate non-player aiding private sector

by its sheer absence to that of an active service provider increases. At the same time, pressure from strong

private sector lobbies within and around the government to channelise more subsidies through the private

sector also mounts. Various new innovative arrangements are tried out, whereby an optimal arrangement

is reached where the State becomes a more active player in the profit making endeavour- much more than

a rescuer in times of recession, or a source of occasional subsidies. The State then becomes a source

of constant and sure income for the private sector, by choosing to be the dominant financier rather than

provider of social sector services like healthcare. The developing world, by the sheer number of poorpeople, thus becomes a profitable business proposition. The private sector quickly identifies the ‘fortune

at the bottom of the pyramid’ in the form of subsidies to the poor, which the regulator/manager State is all

too willing to channelise through the private sector.70

At the same time, a slow but steady consensus is being reached in the Indian scenario, which implicitly

assumes that private sector participation is a non-negotiable since focused policy attention on the

public sector will be inadequate. The general argument framed is that any step forward must allow for a

substantial role to the private sector, proportional to its share in terms of hospital care provided to the

Indian population. The rationale given, however, vary from the well-meaning argument that the dominant

private sector can be tamed and used to achieve public health goals, to the faulty claim that private sector

uses public money more efficiently.

More often and not, utilisation figures of NSSO rounds from the late eighties onwards are quoted to say

that even the poor prefer private sector for healthcare services. It, however, ignores the fact that this

was a period when the public sector was systematically starved of resources and market principles were

introduced into the system. It also misses the fact that healthcare is not a private good that people

consume with complete information. Health services are often an urgent necessity and people often make

decisions not taking fully into account quality, costs or other factors affecting access. Thus, poor people

being forced to vote with their feet on the public sector cannot and should not be the only argument for

more privatisation and more State subsidies to the private sector.

An interesting aspect of the private sector expansion – other than government subsidies- is the nature

of international funds that many major Indian private hospital chains have been able to attract. The WorldBank Group’s newfound commitment to universal and equitable health coverage and to shared prosperity,

while welcome, is often at odds with its investment priorities. In India’s case, the International Finance

Corporation (IFC) which provides loans and advises private sector has been a major mover in the corporate

expansion of the hospital sector.

Recent research by Oxfam (Marriott and Hamer, 2014) has shown that all the members of the World Bank

Group are not aligned in its objectives of UHC and equity in health. 71 The Health in Africa initiative of the

World Bank Group, which was preceded by the publication of a celebrated report titled The Business of

Health in Africa: Partnering with the Private Sector to Improve People’s Lives in 2007, aimed at ‘harnessing

the potential of the private health sector’, which was seen as ‘an additional and powerful instrument

to progress towards the Millennium Development Goals (MDG). Despite the initiative’s commitment onbenefitting the underserved population of Africa, Oxfam’s analysis showed a failure to analyse how to


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reach poor people effectively via the private sector; failure to direct investments for the benefit of poor

people; and failure to even measure whether poor people are being reached72.

A similar story –although understudied- may be at play in India’s case. Reportedly, Indian private healthcaresector represents more than 30 % of IFC’s global healthcare investment portfolio.73 However, the role of

and impact of the recipients of these loans withn the health sector- as in the case of Africa- remain

questionable and further research is necessary to understand this better.

If we briefly look at the indicative case of Delhi, it throws up some interesting findings. Delhi has a large

number of private hospitals, which have received free land and other subsidies from the government to

provide free services to poor patients. Over time, these charitable hospitals have become purely commercial

entities, dishonouring the commitments made to the government. A high level committee assigned by the

Government of Delhi headed by Justice Qureshi took a bleak view of the nature of such hospitals that claim

to be charitable just to lap up subsidies.

Its final report concluded that “most of the charitable hospitals are no more charitable”, although thefounders had intended them to be charitable hospitals, providing considerable relief to the poor, needy

and deserving patients. In a scathing indictment, the report by the high level committee says that the

successors however have been “selfish, greedy and exploitative” and have converted these charitable

hospitals to moneymaking machines. 74 A recent research report which explored the compliance of such

private hospitals in Delhi towards legal commitments to serve the poor noted that:

Apollo is supposed to have 200 beds reserved for EWS (Economically Weaker Sections), but the average number of

EWS patients treated annually remains in the range of 15 to 20 patients. Only 3 out of 8 free beds were occupied at

Fortis, and 4 out of 10 free beds were occupied at Jessa Ram Hospital. Max Devki Devi Heart Institute in Saket has

18 free beds available for EWS out of which on an average only 3-4 beds are occupied (as informed by the regional

manager). The Indian Express reports that for three months before February 2010, when the article was written, nota single EWS patient was treated at Rockland Hospital. (SAMA, 2011)75

Interestingly, four out of five hospitals- Apollo, Fortis, Max and Rockland - mentioned in the preceding

passage as flouters of legal requirements towards healthcare access to the poor, figure prominently on the

IFC web portal as recipients of huge loans from the World Bank Group. The limited investment information

available on the IFC website indicates that these four hospitals put together have received around $320

million (around Rs 2000 crore at current exchange rates) over the last decade. 76

India’s health financing landscape is going through an interesting phase where there is a simultaneous

push for both supply-side as well as demand-side interventions using public money. The pursuit of these

two routes to UHC, one by strengthening the public health system and another, by government financedinsurance has largely been independent of each other with little integration so far between the two.

Rao (2013) notes that this has led to many issues: firstly, the presence of government insurance schemes

has made public sector hospitals and private hospitals unequal competitors for funds. While this is viewed

as an opportunity for government owned hospitals to gather additional resources, in reality, the situation

favours the private sector because of the current status of the historically fund-starved public sector.77

However, in some states like Kerala and Chhattisgarh where participation of government hospitals in

schemes like RSBY was actively promoted and often mandated by the state government, it has indeed

helped.

Rao (2013) also observes that in the current scenario there will be limited fiscal space in the health

sector to pursue both routes simultaneously as these will independently require substantial resources.Rejuvenating the public health system can be realised with up to 3% GDP according to the HLEG report.


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Another recent estimate suggests that government insurance schemes are expected to consume around

0.8% of GDP and this is expected to grow as coverage increases and the population grows older. In Andhra

Pradesh, the Rajiv Arogyasri Scheme consumes a substantial percentage of the state’s health budget,

severely restricting the fiscal space available for primary or secondary level interventions.78

Most of themoney was absorbed by the private sector.

A recent review of the (Sengupta, 2013) health sector showed that for the Arogyasri Scheme, the total

payments to facilities accredited from 2007 to 2013 amounted to Rs 47.23 billion, of which Rs 10.71 billion

was paid to public facilities and Rs 36.52 billion went to private facilities. It was shown that the scheme

drew 25% of the state’s health budget while covering only 2% of the burden of disease.79

Historically, the incurred claims ratio of health insurance schemes has been way above 100% in India. This

has been true for community based insurance schemes- which were a precursor to the current crop of

government funded health insurance schemes. Understandably, public sector insurance companies had

higher incurred claims ratio vis-a-vis private sector insurance companies. Many public sector companies

treated smaller community based health insurance programmes as part of their social responsibilityinitiative and rejection rates were kept low.

For example, for the community based health insurance scheme run by Karuna Trust which focused on

socially marginalised people, National Insurance Company (NIC), a public sector company accepted a claim

ratio of up to 150% because of the social nature of the scheme.80 It was observed that for the company,

the insurance scheme was not only a social obligation imposed by insurance regulations, but” a matter

of heart”. The premiums were artificially kept low as well. It was seen that the company’s commercial

activities will cross- subsidise the insurance scheme for the poor, and a high incurred claims ratio of such

schemes was seen as a symbol of the company’s recognition of the ‘social character of the scheme’. 81

The new crop of government financed insurance schemes for the poor were quite different from the existing

ones like Employee State Insurance Scheme (ESIS) and Central Government Health Scheme (CGHS) which

focused on employees in the formal sector. The new schemes tied with insurance companies –both public

and private- in order to tap into the existing private sector healthcare delivery system.

There are different schemes started by the central government as well as some state governments. There

are states where more than one scheme run parallel .There is a widespread perception that public sector

does not have the money to expand at the rate at which healthcare needs to expand. Hence, parallel to the

expansion of insurance for the poor, the encouragement given to the private sector like concessional land

and tax exemptions continue as part of policy.

According to a recent review, all of the newer schemes have a common feature: the use of commercial

insurers or Third Party Administrators for underwriting and administrative functions such as beneficiaryenrolment, hospital empanelment and claims processing and payment. Most of the managerial functions

are thus outsourced given that a robust governance architecture has not yet developed.82

In recent years, the health insurance business with a view to expand their market has been actively

encouraging Public Private Partnerships (PPP), with support from the government, whereby private sector

gets access to public resources under government mandated health insurance schemes for the poor.

The government sponsored health insurance market has boomed in the last few years taking the insured

population coverage from 5% in 2008-09 to a whopping 22% in 2010-11. This is a huge bonanza for the

health insurance business with premiums under government schemes totalling Rs. 1699.61 crore (of which

Rs. 1201 crore was private sector insurance companies) in 2010-11 covering 189 million individuals, up from

Rs. 1077.18 crore (of which private sector share was Rs. 887 crore) and a coverage of 167 million in 2009-

10. The private banking companies which deal big in government schemes like the Industrial Credit and


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Figure 3.1: Incurred Claims Ratio: Health Insurance Industry

Source: IRDA Annual Reports,various years.

Investment Corporation of India (ICICI), have more than half of their overall business in non-life insurance in

government –sponsored insurance focusing on the poor83.

The development of the health insurance market, aided in no small measure by direct government support,

has seen many interesting policy developments. As Figure 3.1 shows, there were efforts to bring down the

overall incurred claims ratio of the industry. However, along with the expansion of “government insurance

schemes” focusing on the poor in the overall insurance pie, a key reversal of the claims ratios happened

whereby private voluntary insurance-mostly covering individuals and organised sector- retained the

over 100% status of high claim/low rejection rates, and at the same time saw drastic suppression in theclaims ratios of government funded schemes, mostly targeted at the BPL population. As Figure 3.2 shows,

public sector insurance companies which historically had high claims ratios in health insurance schemes

focusing on the poor, now have considerably low claims ratios vis-a-vis the private variants of insurance.

This was not something that was driven solely by the profit maximisation objective of the companies. Strong

disincentives were put in place by the Insurance Regulatory and Development Authority (IRDA) -the apex

body which regulates and develops the insurance industry in India- within the governance structure of the

public funded insurance schemes to suppress demand. These strong disincentives worked to suppress

claims ratios of public insurance companies in the government insurance scheme sector, as the ratios for

the private sector were in any case lower. A circular by IRDA in February 2011 read: “If (..) incurred claims

ratio for the said portfolio turns out to be more than 70% for the consecutive four half years, the insurer

may not be allowed to participate in the tender for any Government sponsored scheme for a period of at

least two years”84.

0

20

40

60

80

100

120

140

160

180

Private Public

2006-07 2007-08 2008-09 2009-10 2010-11 2011-12


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Chapter 4

The Case of Rashtriya Swasthya

Bima Yojana (RSBY)RSBY which was launched in 2008 was the second national level insurance scheme focusing on demand-

side financing of healthcare. RSBY is now India’s flagship national health insurance scheme for people living

below the poverty line. In insurance based models such as RSBY, the insurance company would ideally like

to enrol a large number of eligible families to maximise the premium income and spend as little as possible.

The latter will be achieved by gate keeping functions, like permission for surgical procedures, selectionof procedures, cutting out unnecessary diagnostics, surgeries and so on. The interest of the healthcare

service provider will be to carry out as many surgical procedures and diagnostics as possible to get the

maximum amount per patient. The insured family would like to visit the hospital for almost all illnesses for

which it could get cashless services. In this context, the scope of unethical and iniquitous practices is high

and the need to have a strong regulator- preferably government- is evident.

Notwithstanding its relatively recent origin, a number of studies have tried to measure the scheme’s impact

on health service use as well as financial outcomes. The available evidence questions the scheme’s ability

to offer financial protection and reduce OOP spending efficiently. There is a lot of debate also on the

various methodological challenges to assessing impact of such schemes.92 In the context of the adverse

evidence, a recent review argued that it may be premature to dismiss health insurance initiatives based

on the existing analysis because these schemes tend to perform better with time, and advised patience.93 However, this call for cautious optimism seems to be quite misplaced.

By mid-2013, 35 million households had been enrolled in RSBY and it is claimed that 50 % of BPL households

were enrolled in the 460 districts where RSBY operates.94 These figures however hide wide regional and

gender disparities in enrolment. The fact that only five people can enrol per household may have given

preference to male members of the family. Overestimation of coverage may also have been a problem as

data on renewals is not published. Ghana is a case in point here- when only active members were counted -

the official coverage was revised down in 2010 from two-thirds to just one-third of the overall population .95

RSBY provides only limited financial protection to the enrolled BPL population with limited secondary level

care. It offers Rs.30,000 coverage for a family of five for hospitalisation when three-fourths of OOP healthexpenditure in India goes towards medicines and hospital visits. As with other similar health insurance


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low and where insurers, in turn, reap their share of high profits.100 More serious claims of fraud include the

alleged enrolment of thousands of ‘ghost’ beneficiaries by ICICI Lombard — India’s largest private sector

insurance company. The losses to government, though not yet fully calculated, are believed to run into

tens of millions of rupees.101 Figure 4.1 based on latest available data on hospitalisation ratios show that

female hospitalisation rates are consistently higher. In the context of various scams across states of largenumber of illegal hysterectomies being carried out on unsuspecting women, this may require focused

attention. Hysterectomy costs are among the highest of all the procedures under RSBY, and this seems to

be driving this phenomenon.102

Existing evaluations show that RSBY implementation is riddled with concerns rooted in social inequalities.

It was seen that districts with a higher share of socioeconomically backward castes are less likely to

participate, and their enrolment rates are also lower. At the same time, districts with more non-poor

households may be more likely to participate, even if their enrolment rates may still be low. 103 A study of

RSBY in Gujarat showed no considerable difference between the OOP expenditure of insured and uninsured

cohorts. Most of the health spending incurred by the patients covered by RSBY were related to medicines104.

A recent study exploring the implementation of RSBY based on a large-scale multistage sample surveyin Maharashtra (Ghosh, 2014) found that implementation of government insurance schemes through

commercial insurance companies results in high administrative cost, large scale exclusions of eligible

population and “supply-side moral hazards leading to draining out of precious public resources”. This

study also found that only a small proportion of enrolled families had RSBY cards and only small proportion

of enrolled families benefitted when they had to get admitted. The author observed further that “there

is no country in the world which has engaged commercial insurance companies for implementing social

health protection programmes”. The study recommended a reversal of healthcare financing mechanisms

introduced in the last few years. 105

High hospitalisation ratios for women in RSBY are sometimes shown as instances of increased financial

autonomy for women, sometimes by authors who have been closely involved with the implementation ofthe scheme.106 However, increased access/utilisation cannot be read automatically as improved autonomy

or empowerment. More so when, as part of RSBY, women become victims of corruption and unnecessary

procedures are forced on them causing bodily harm.107 In the light of the inconclusive and generally

negative evidence, the high praise given to RSBY and other health insurance schemes by influential

agencies including the World Bank Group and the International Labour Organisation ( ILO) has contributed

significantly to its policy popularity and as observed by a recent Oxfam paper, this is “both premature and

dangerously misleading”.108 Government of India’s Working Group on Health constituted for the Twelfth Five

Year Plan in its report on the progress and Performance of NRHM specifically mentioned:

It is understood that in many states the RSBY has a poor claims ratio despite widespread moral hazards of

overcharging, except in Kerala where the claims ratio is over 130%. It also has the propensity to convert primaryand secondary care- into tertiary care and outpatient care into in-patient care. Mechanisms of gate-keeping

or monitoring are weak and critical data needed for its evaluation is difficult to access. While recognizing the

great hope and potential that lies behind this scheme, prudence calls for evaluation before this is scaled up even

further- much less projected as the general solution. Publicly financed insurance programmes, when much better

structured, monitored and regulated could play an important supplementary function, rather than become the

main vehicle of health care financing.109

It is clear from available evidence that there is no objective basis to any claim that insurance based models

should be the vehicle for India’s efforts towards UHC. Despite their popularity at the highest levels of

policymaking, it is observed that there is resistance to objectively evaluate government funded insurance

schemes. Politicians and administrators often presume that independent evaluations cause more damage

than benefit.110 State governments in India are known to be hesitant towards conducting independent

evaluations of health insurance schemes, and RSBY, where it is often claimed that some “rigorous


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Chapter 5

Way ForwardA cautious two-pronged approach of developing infrastructure through NRHM and providing gap-filling

tertiary care through strictly regulated in-sourcing from the private sector may be inevitable in any effort

towards UHC. As observed earlier, the historically underfunded, undersupplied and understaffed public

sector- despite new investments in public primary care- is still trapped in the perceived image of lack

of quality, and many outpatients are kept away from the public sector because of lack of coverage and

shortages113. However, a systematic review which included India in its analysis rejected the claim that the

private sector is more efficient, accountable, or medically effective than the public sector. 114 The public

sector seems to lack timeliness and hospitality towards patients, and it may be directly related to staff andinfrastructure shortages.

The answer, however, does not seem to lie in the current insurance based models which in the name

of bringing in ‘competition’ and ‘efficiency’, puts the public and private hospitals on an imaginary level

playing field, and forces patients to vote with their feet in a situation of extreme information asymmetry.

Substantially increased funding to directly address the shortfalls of physical infrastructure, healthcare

personnel and availability of medicines are needed to regain people’s faith in the public healthcare delivery

system.

Complementing this, democratic relations both within public health delivery system and between people

and the system will need to be deepened. Community based monitoring and participatory planning at the

facility and community level becomes a must to make necessary improvements in public health facilities.An increase of public spending on health to 3% of GDP thus becomes a non-negotiable in the medium run.

Globally, the State is increasingly shifting from being a major provider of services to financier of select

and limited set of needs for a minority within the poor. In India, the move towards an insurance based

model is happening despite the flimsy evidence on which that choice is based. Although there is general

acceptance for RSBY among policymakers as the model on which UHC in India should be based, it is not

clear how serious issues like supplier induced demand, price discrimination (charging the insured more)

and cost escalation that inflict RSBY in many states are going to be addressed while it is scaled up.

Nevertheless, it is often seen that when it comes to problem-solving, many policy-makers are informed

and often driven by copious amounts of hope -much more than what robust health policy can possiblyhandle. For example, at the launch of RSBY in 2008, we had the bureaucrat in charge of the scheme writing


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that the issue of fraud will be taken care of by the ‘competition’ between hospitals –- with poor patients

identifying ‘rotten apples’ and approaching only the genuine providers.115

That we are talking about a sector with inherent information asymmetries adds to the irony of suchthinking. The same bureaucrat wrote in 2011 in a laudatory United Nations Development Programme (UNDP)

publication: “(RSBY) was perhaps the first-ever business model on this scale for a social-sector scheme

with insurance companies and hospitals finding fortune at the bottom of the pyramid “. 116 Such blind

enthusiasm cannot be the benchmark of healthy social policy. It is a matter of concern that after six years

of operation, inconclusive findings, cases of corruption and financial irregularities in the scheme have

not impacted RSBY’s policy popularity. However, there seems a slow reversal to the policy popularity to

fortune-seeking models, as the Reserve Bank of India Governor sharply criticised micro-lenders for making

a fortune out of the poor. He emphasised : “ one cannot, in good conscience, make a fortune at the bottom

of the pyramid”117.

Another parallel case in point is the 5% service tax on centrally air-conditioned hospitals and diagnostic

centres that was withdrawn as soon as it was proposed citing general resentment. This was attacked byindustry giants as being a patently anti-aam aadmi measure. The obsession with aam aadmi was so much

that in an open letter against the ‘misery’ tax , Dr Devi Shetty fumed; “Less than 10% of our population can

afford heart, brain or cancer surgery. In the process we perhaps produce the largest number of young

widows in the world”118. It was an unexceptionable demand, and the then minister took virtually no time in

course-correction by withdrawing the ‘misery’ tax.

While the withdrawal of the tax in itself may not have been problematic, it carries a policy lesson on

the attitude of the Indian State. In terms of the sheer scale of ‘misery’, it is the user fees in government

facilities that would be causing more distress to the poor, both in terms of financial burden as well as in

terms of forcing the poor to forgocare at all.119 Evidence has been there for almost twenty years and a policy

consensus against the use of such fees in developing countries was reached many years ago.

Even after many poor African countries have successfully abolished user charges120, India is yet to even start

moving in that direction. Hence, we have a service tax that was removed in just a week of its introduction,

while other service fees remains in operation for more than two decades. Common Review Missions of NRHM

have criticised user fees year after year, but nothing has happened yet. It is a matter of concern that in the

era of ‘evidence-based policymaking’, the State did not remove the service tax because of solid evidence

against it, nor is it continuing with user fees for lack of solid evidence against it.

The main reason for the popularity of insurance-based solutions is their perfect harmony with policies of

private-sector-led public health. For example, these are mostly agnostic about the nature of the providers

–- making the scope for private ‘participation’ manifestly higher like in the case of RSBY where government

shifts from being a provider of services to a financier. It is revealing that in a state like Maharashtra, whichis perceived to have a large private health sector and a relatively better off public sector than many states,

not even 1% of the hospitals empanelled for the scheme are from the public sector.

More important is the parallel development where the State is using strategies of privatisation, auctioning

off and contracting out public healthcare facilities so as to minimise its own presence in the health

sector. Driving people away from the public facilities has become almost a policy goal; nothing else can

explain India choosing to retain user charges in its public hospitals ignoring evidence, even after most of

Africa is moving towards its abolition. Seen in this context, while user charges push poor patients away

from the public facilities, new insurance schemes offer incentives to access private facilities – both

creating disincentives in the health systems in accessing public facilities. Without a doubt, this will get

reflected in the next morbidity round of NSSO, and more evidence on how the poor prefer private sectorwill follow.


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The section on healthcare financing in the initial draft of the Twelfth Plan Approach Paper started with the

following befuddling statement, “public financing of health care does not necessarily mean provision of the

service by public providers” and went on to recommend private sector participation through a government

funded health insurance plan along the lines of RSBY121

. In an environment of minimalist regulation, thepatient is being transformed into a consumer. Even in states where the basic design of RSBY was improved

substantially to enhance coverage and participation of public hospitals like in Kerala, concerns of moral

hazard and cost escalation remain unaddressed.

Thankfully, there are other states that have experimented with inclusive innovations outside the insurance

framework. Some such state level experiences with free access to medicine schemes will be explored in

depth in a forthcoming Oxfam India publication. According to Xavier and Reddy (2014), Rajasthan, one of

the least developed states in the country, is an example. It has been running a free medicines scheme

since 2011. The state government spends $50m a year to provide 400 types of free medicines to patients

in government hospitals. Every day, some 200,000 people benefit from the scheme. The number of patients

going to government hospitals for treatment in the state has increased by 56%. The Rajasthan experience

also shows that medicines procured in bulk under their generic names cost far less. This disparity ispossible because most of the medicines are not under any price control.122 In May 2015, Odisha has also

launched its own free medicine scheme.123

However, recent news suggests that the Rajasthan government has downsized the universal scheme,

making it targeted.124 The Central government had in fact promised in 2012 to provide free drugs in public

health facilities. In 2014, there were plans to provide 348 essential drugs free of cost, which was later

reduced to 50 drugs. The health ministry in April 2015 clarified that there will be no separate central scheme

for free drugs and diagnostics125.

The 2014-15 Union budget speech by Finance Minister Arun Jaitley promised a move towards health for

all with schemes providing free drugs and diagnostics on a priority basis. However, there have been nofinancial provisions in the 2014-15 budget for either of these. Reports suggest that in the 2015-16 budget

speech, the words medicine, drugs or diagnostics do not appear. 126 Thus, th withdrawal of the State from

social sectors is happening at an accelerated pace, and a momentum towards insurance-based solutions

in the health sector seems formidable at the moment.

In any effort towards UHC, increased outlays on health by the centre as well as the state governments is a

non-negotiable. There has been marginal but consistent progress in this regard over the last decade. This

has also been the result of the constant struggle by the civil society over past decades. If an insurance-

based solution is opted for as part of the new UHC push, which would, in practical terms mean scaling

up the untested RSBY, civil society activists will need to be vigilant that what happened with the NHS in

the U.K. in 2000 does not happen.127 It needs to be emphasised that any effort towards UHC that does

not discriminate between private and public providers, will end up privileging the private sector in India,given the history of inadequate investments in the public sector, and given the extent of crony capitalist

tendencies in the economy.

Alternative sources will have to be tapped in order to generate more resources for health. Calculating

the costs of a wholly public owned network of providers and facilities, Duggal (2011) estimates Rs 3077

billion at 2009-10 prices for Universal Healthcare, which amounts to 4.73% of GDP. The public exchequer’s

share out of this will be about 3% of GDP, and the rest will be mostly from employers and employees in the

organised sector, and other innovative mechanisms of financing.128 As of now, there are serious inequities

in the distribution of public spending among the population, which point towards the need to consolidate

and merge the currently fragmented schemes. A review in 2015 showed that while RSBY that is a narrow

scheme and covers 84 million individuals from the unorganised sector, the CGHS is a broad scheme thatcovers 3.2 million from the organised sector. The total spending – not per capita spending - on central


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government employees through CGHS is more than eight times as compared to the spending on the BPL

segment through RSBY. 129

Prats (2013) observes that India’s tax-GDP ratio is just about half as that of Brazil or South Africa. Anotherkey characteristic of the Indian tax system is the relatively low share of personal and corporate income

taxes. In 2009-10, India’s personal and corporate taxes were one of the lowest in all G20 countries, and well

below South Africa and Russia. One reason for the shortfall is the low tax rate enjoyed by high earners. The

current rate is even lower than the average maximum personal income tax rate in sub-Saharan Africa.130 As

for corporate income tax, research showed that there is a significant difference between the statutory tax

rate (33 %) and the rate that is effectively being paid (24 %).131 Despite this, the Union budget for 2015-16

proposed to lower corporate taxes even further. 132

Abusive tax avoidance by Multi National Corporations (MNC) in India causes huge losses to exchequer every

year. Recent research (Jansky and Prats, 2013) based on financial and ownership data of more than 1,500

MNCs operating in India showed that in 2010 those MNCs with links to tax havens reported 1.5 % less profits.

These MNCs paid 17.4 % less in taxes per unit of asset and 30.3 % less in taxes per unit of profit than MNCswith no such links. 133

Studies indicate that India has the maximum number of transfer-mispricing cases in the world after Japan

and Canada. According to the country’s Directorate of Transfer Pricing, the amounts involved in mispricing

ran at US$12.6 billion in 2011-12. Corporation tax of 33 % on these amounts would have provided an

additional US$6.9 billion.134 Despite having double tax avoidance agreements (DTAAs) with 88 countries135,

India still manages to lose a substantial chunk of potential tax revenue. Despite this alarming situation,

general anti-avoidance rules (GAAR) have been deferred indefinitely, because it is feared to impact “investor

confidence”, both foreign and domestic. 136 A recent UN report calls for greater regional cooperation that

can strengthen tax collection, enabling countries to avoid tax competition and to harmonise tax rates.137

CBGA’s analysis (CBGA, 2014) shows that the aggregate amount of revenue foregone due to exemptions in

the central taxes is projected to be Rs. 5.73 lakh crore (equivalent to 5 % of GDP) for the year 2013-14. 138

All these point towards various possibilities to mobilise resources to cover increased health spending and

improved financial protection. The financial protection that insurance schemes offer is at best, limited, as

the main causes for OOP spending in India, namely out-patient care and drug spending, are left unaddressed

by such schemes that the State promotes currently. Citing the case of Thailand, it was observed that

including primary and preventive care as part of the insurance services, and providing them largely through

the public sector facilities can significantly reduce moral hazard problems. 139

Focused funding to ensure that we have a working referral system – that is , there are restrictions on

accessing secondary and tertiary healthcare without accessing primary care unless in emergency – can

also be an effective check against spiralling medical costs.140 However, health experts warn about thedangers of India moving towards a system of lightly-regulated health insurance coverage , as the task of

regulating the system can be “beyond daunting” , and it is far easier for the government to improve the

functioning of health services that are directly under its control.141

The groundswell for UHC is very welcome (though already decades late), and at the same time challenging.

UHC has the potential to transform the lives of millions of people by bringing life-saving healthcare to those

who need it most.142 For the same reason, how we go about achieving UHC becomes extremely important.

Policy Recommendations

Government should be the primary provider of healthcare, and provision of healthcare for all should

not be based on expansion of health insurance-based models focusing on hospitalisation.


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A clear roadmap to enhance budgetary spending on healthcare to 3%-5% of GDP should be drawn.

Public tax-based funding and contribution from the organised sector should finance healthcare

and focused funding in the form of specific central transfers should be made to promote equitable

access.

Regulation of the private sector must be a priority. Establishment of standard treatment protocols

and empowerment of communities to hold the healthcare system accountable will be critical to

ensure quality of healthcare in the public and private sectors.

A comprehensive review of RSBY and other currently fragmented government funded healthcare

schemes should be conducted with the aim of future consolidation for a national programme

ensuring healthcare for all.


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Notes

1 Jody Heymann, Adèle Cassola, Amy Raub & Lipi Mishra (2013) Constitutional rights to health, public health and medical care:

The status of health protections in 191 countries, Global Public Health: An International Journal for Research, Policy and

Practice, 8:6, pp. 639-653.

2 http://worldpolicyforum.org/global-maps/do-citizens-have-a-specific-right-to-medical-services/

3 http://data.worldbank.org/indicator/SI.POV.2DAY

4 http://apps.who.int/iris/bitstream/10665/112682/2/9789241507226_eng.pdf?ua=1

5 http://apps.who.int/gho/data/node.main , http://www.censusindia.gov.in/vital_statistics/SRS_Reports_2013.html ,and

http://www.censusindia.gov.in/vital_statistics/mmr_bulletin_2011-13.pdf

6 http://www.thehindu.com/news/national/despite-high-maternal-mortality-india-records-drop-in-fertility/

article6869779.ece

7 http://www.thehindu.com/opinion/editorial/editorial-on-women-death-in-bilaspur-due-to-sterilisation-process/

article6595787.ece

8 Kumud Sharma (2011), Changing the Terms of the Discourse: Gender, Equality and the Indian State, CWDS, Pearson Education,

New Delhi.

9 Robert Marten et al (2014) , An assessment of progress towards universal health coverage in Brazil, Russia, India, China, and

South Africa (BRICS), The Lancet, April 30, DOI: 10.1016/S0140-6736(14)60075-1

10 ibid

11 http://www.phmovement.org/en/node/867

12 World Health Organisation (1978), Health for All through Primary Health Care: Report of the International Conference on

Primary Health Care, Geneva.

13 Ramila Bisht (2014) , Universal Health Care: The Changing International Discourse, Indian Journal of Public Health, Volume

57, Issue 4, Pp 236- 41.

14 World Health Organization(2010), Health systems financing: The path to universal coverage, Geneva, cited in Gorik Ooms et

al (2014)

15 Gorik Ooms et al (2014), Is universal health coverage the practical expression of the right to health care?, BMC International

Health and Human Rights 2014, 14:3.

16 World Health Organization (2012), Positioning Health in the Post-2015 Development Agenda, WHO, Geneva.

17 Amit Sengupta (2013a), Universal Health Coverage: Beyond rhetoric, Occasional Paper No. 20, Municipal Services Project.

18 Sarah Boseley (2012) , From user fees to universal healthcare - a 30-year journey, The Guardian, London.

19 http://www.theguardian.com/environment/2014/apr/03/clima

Financing Healthcare for All in India: Towards a Common Goal

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